Article Highlights

  • U.K. CPI m/m: -0,1% as expected vs. 0.2% previous
  • U.K. CPI y/y: 0.6% vs. 0.5% expected, 0.5% previous
  • U.K. core CPI y/y: 1.3% as expected, 1,4% previous
  • U.K. PPI input m/m: 3.3% vs. 0.6% expected, 1.7% previous
  • U.K. PPI input y/y: 4.3% vs. 2.0% expected, -0.5% previous
  • U.K. PPI output m/m: 0.3% vs. 0.2% expected, 0.3% previous
  • U.K. PPI output y/y: 0.3% vs. 0.0% expected, -0.2% previous
  • U.K. HPI y/y: 8.7% vs. 8.3% expected, 8.5% previous
  • German ZEW economic sentiment: 0.5 vs. 2.0 expected, -6.8 previous
  • Euro Zone ZEW economic sentiment: 4.6 vs. -6.3 expected, -14.7 previous
  • Euro Zone trade balance: €29.2 vs. €25.3 expected, €24.5 previous
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Greenback weakness persisted during the morning London session while the recovery in oil prices gave the Loonie a nice boost. The pound, meanwhile, jumped higher on positive inflation data.

Major Events/Reports:

U.K. post-referendum inflation – The U.K.’s headline CPI reading for July dipped by 0.1% month-on-month but advanced by 0.6% year-on-year. The annual reading managed to beat expectations of a 0.5% increase, and is apparently the highest reading since November 2014.

Also, it looks like more inflationary pressures are to be expected since PPI input jumped by 3.3% month-on-month, which is substantially higher than the expected 0.6% increase. The annual reading for PPI input is even more impressive since it came in at 4.3%, which is the first positive reading in two years. Also, PPI output or factory gate prices increased by 0.3% year-on-year, which is the first increase since June 2014.

The better-than-expected readings are not really all that surprising, though. After all, the BOE did explicitly warn in the August Inflation Report that the pound’s weakness as a result of the Brexit referendum would result in higher import costs. This, in turn, would prop up inflation and is one of the reasons why BOE officials also upgraded their inflation expectations.

BOE officials even acknowledged during the August MPC statement that the new easing measures would likely cause the pound to fall further and therefore come “at the cost of a temporary period of above-target inflation.”

Risk aversion returns to Europe – It was a gloomy day in Europe, with most of the major European equity indices in the red.

  • The pan-European FTSEurofirst 300 was down by 0.50% to 1,356.21
  • The blue-chip Euro Stoxx 50 was down by 0.88% to 3,023.00
  • The U.K.’s FTSE 100 was down by 0.35% to 6,916.70
  • The DAX was down by 0.64% to 10,670.50

U.S. equity futures were also sharing the downbeat mood, so it looks like risk aversion will carry over into the U.S. session.

  • The S&P 500 futures index was down by 0.10% to 2,183.75
  • The Nasdaq futures index was down by 0.07% to 4,819.38

Aside from profit-taking and risk sentiment spillover, market analysts are also pointing to disappointing reports that hammered industrial stocks and overall sentiment.

Commodities continue to soar – Equities may be in the red overall, but commodities were flying higher during the session.

Precious metals were well in the green:

  • Gold was up by 0.79% to $1,358.15 per troy ounce
  • Silver was up by 1.11% to $20.068 per troy ounce

Meanwhile, base metals were in positive territory:

  • Copper was up by 1.19% to $2.177 per pound
  • Tin was up by 0.29% to $18,237.50 per dry metric ton
  • Aluminum was up by 0.46% to $1,684.75 per kilogram

As for oil benchmarks, they got some love as well:

  • U.S. WTI crude oil was up by 0.59% to $46.01 per barrel
  • Brent blend crude oil was up by 0.56% to $48.62 per barrel

The second day of broadly rallying commodity prices this week was very likely due to the due to another round of Greenback weakness, which makes commodities relatively cheaper.

Major Currency Movers:

CAD – Oil was back in the green, so the Loonie got a bullish boost across the board. It wasn’t the strongest currency of the session, though.

USD/CAD was down by 85 pips (-0.66%) to 1.2818, EUR/CAD was down by 27 pips (-0.19%) to 1.4478, AUD/CAD was down by 37 pips (-0.37%) to 0.9913

CHF – The Swissy was the one currency to rule them all during the morning London session. The Swissy’s strength was probably because of safe-haven flows, given the prevalence of risk aversion during the session.

USD/CHF was down by 71 pips (-0.74%) to 0.9606, NZD/CHF was down by 28 pips (-0.40%) to 0.7001, EUR/CHF was down by 31 pips (-0.29%) to 1.0848

GBP – The pound jumped across the board when the inflation report was released. Price action on the pound became more mixed after that, though, probably because the jump in inflation wasn’t really all that surprising. Still, the pound was able to hold onto its gains to end the session a net winner.

GBP/USD was up by 69 pips (+0.54%) to 1.2966, GBP/JPY was up by 113 pips (+0.10%) to 129.44, GBP/AUD was up by 39 pips (+0.24%) to 1.6766

USD – The Greenback’s weakness persisted (and even worsened) during the morning London session. The catalyst was apparently an economic letter released by San Francisco Fed President John Williams during yesterday’s U.S. session, according to some analysts.

EUR/USD was up by 50 pips (+0.45%) to 1.1292, AUD/USD was up by 22 pips (+0.29%) to 0.7732, NZD/USD was up by 25 pips (+0.36%) to 0.7287

Watch Out For:

  • 12:30 pm GMT: Canadian manufacturing sales (0.5% expected, -1.0% previous)
  • 12:30 pm GMT: Headline (0.0% expected, 0.2% previous) and core (0.2% expected, same as previous) readings for U.S. CPI
  • 12:30 pm GMT: U.S. building permits (1.16M expected, 1.15M previous)
  • 12:30 pm GMT: U.S. housing starts (1.18m expected, 1.19M previous)
  • 1:15 pm GMT: U.S. capacity utilization (75.6% expected, 75.4% previous)
  • 1:15 pm GMT: U.S. industrial production (0.3% expected, 0.6% previous)
  • 10:45 pm GMT: New Zealand’s jobless rate (5.3% expected, 5.7% previous)
  • 10:45 pm GMT: New Zealand’s employment change (0.6% expected, 1.2% previous)
  • 10:45 pm GMT: New Zealand’s PPI input (-1.0% previous)
  • 10:45 pm GMT: New Zealand’s PPI input (-0.2% previous)
  • Dairy auction currently underway (6.6% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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